Encouraging Knowledge Sharing_The Role of Organizational Reward Systems

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DOI: 10.1177/107179190200900105 2002 9: 64Journal of Leadership & Organizational Studies

Kathryn M. Bartol and Abhishek SrivastavaEncouraging Knowledge Sharing: The Role of Organizational Reward Systems

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Encouraging Knowledge Sharing: The Role ofOrganizational Reward Systems

Kathryn M. Bartol, University of Maryland, College Park, MDAbhishek Srivastava, West Virginia University, Morgantown, WV

This article examines the role of monetary rewardsin encouraging knowledge sharing in organizationsthrough four mechanisms of knowledge sharing. Weargue that the system of contributing knowledge todatabases is the most amenable to rewardscontingent on knowledge sharing behaviors becauseof opportunities for the reward allocator to measurethe knowledge sharing behaviors. In the case offormal interactions within or across teams and workunits, while rewards could be made partly contingenton knowledge sharing behaviors as in merit pay,rewards based on collective performance are alsolikely to be effective in creating a feeling ofcooperation, ownership, and commitment amongemployees. In addition, we propose that team-basedrewards and company wide incentives (profitsharing, gainsharing, and employee stock options)would be particularly instrumental in enhancingknowledge sharing within teams and across workunits, respectively. In the case of knowledge sharingthrough informal interactions, the key enablingfactor is trust between the individual and theorganization. In this case, the role of rewards isindirect, that is, procedural and distributive fairnessof organizational rewards are important factors inthe development of trust. We also considerknowledge sharing in communities of practice andtheorize that intrinsic rewards and factors that buildexpertise and provide recognition are the mostappropriate means of fostering feeling ofcompetence. Finally, we discuss the researchimplications.

Organizational knowledge has beenrecognized as a valuable intangible resource thatholds the key to competitive advantage (Grant,1996). However, Spender and Grant (1996) notedthat despite recent interest in organizationally

embedded knowledge, little progress has beenmade &dquo;in understanding its anatomy and creation&dquo;(p. 6). Researchers have argued that sinceindividuals are the prime movers of knowledgecreation in an organization (Nonaka, 1994),knowledge sharing among individuals could assistin knowledge creation at a collective level. Senge(1990) proposed that organizational knowledge iscreated through communication of individuallearning among co-workers. Similarly, Nahapietand Ghoshal (1998) postulated that organizationalknowledge is created as a result of thecombination and exchange of existing knowledgeamong employees. Thus, given the importance ofknowledge sharing, scholars and practitionerswould be interested in identifying tools thatenhance knowledge sharing within theorganization. Our paper examines the role of onesuch mechanism, organizational reward systems,in influencing knowledge sharing by employees.

Several organizations have introduced rewardsystems to encourage employees to share theirknowledge with others. For example, BuckmanLaboratories recognizes its 100 top knowledgesharers with an annual conference at a resort.Lotus Development, a division of IBM, devotes25% of the total performance evaluation of itscustomer support workers on the extent of theirknowledge sharing activities (Davenport, 2002).Though knowledge management systems haveemerged in the last two decades, employeesuggestion programs have been present for a muchlonger time even though these are narrower infocus. Typically, employees receive monetary ornon-monetary awards for their valuablesuggestions in such programs.


65

Our paper raises certain issues fororganizations that reward people for knowledgesharing behaviors, and we also conceptualize therole of reward systems that do not specificallyfocus on knowledge sharing but may still affectthe extent to which people share their knowledgewith others in the organization. We begin with adiscussion of what we mean by knowledge sharingand its general linkage to rewards. We thendiscuss four different mechanisms for sharingknowledge and identify the role of reward systemsin each of the mechanisms.

Knowledge sharing and rewards

Knowledge sharingResearchers have used diverse expressions to

define knowledge. For example, Nonaka (1994, p.15) defined knowledge as &dquo;justified true belief&dquo;.Starbuck (1992) defmed knowledge as stock ofexpertise. Elliott and ODell (1999) definedknowledge as information in action. In the trainingliterature, Goldstein (1993) defined knowledge asadequate understanding of facts, concepts, andtheir relationship, and the basic foundation ofinformation a person needs to perform a task.While some scholars (e.g., Huber, 1991; Nonaka,1994) distinguish between knowledge andinformation, we use the two conceptsinterchangeably in line with more recent works(Alavi & Leidner, 2001; Earl, 2001), which arguethat there is little practical utility in making adistinction between knowledge and information.Based on these views, we consider knowledge toinclude information, ideas, and expertise relevantfor tasks performed by individuals, teams, workunits, and the organization as a whole.

Polanyi (1966) classified knowledge into twocategories: explicit and tacit. Explicit knowledgeis codifiable and transmissible in a formallanguage. On the other hand, tacit knowledge isdifficult to convey in formal language and isusually specific to an individual.

We define knowledge sharing as individualssharing organizationally relevant information,ideas, suggestions, and expertise with one another.The knowledge shared by individuals could beexplicit as well as tacit. The explicit knowledge

can be shared through verbal communication. Inhis conceptualization of sharing tacit knowledge,Nonaka (1994) suggested that the recipient couldgain tacit knowledge from the source through

socialization, observation, and apprenticeship.Thus, for a source of tacit knowledge, the methodof sharing knowledge would be giving therecipient the maximum possible opportunity towork alongside. Nonaka also suggested that tacitknowledge can be communicated through theprocess of extemalization whereby the knowledgesource engages in elaborate communication usinganalogies, metaphors, and stories to communicatetacit knowledge. Thus, sharing knowledge,whether explicit or tacit, requires effort on the partof the individual doing the sharing.

Researchers (e.g., Fisher & Fisher, 1998;Tobin, 1998) have expressed concern thateffective sharing of knowledge among individualsor teams may not take place in organizations.French and Raven (1959) identified knowledge(expertise) as a source of power, the disclosure ofwhich might lead to erosion of individual power,thereby partly explaining an individualsreluctance to share it with others. Szulanski (1996)identified lack of motivation of a knowledgesource as an important impediment to the transferof best practices within an organization. Some ofthe reasons, identified by Szulanski, for thereluctance of a person to share knowledge are: fearof losing superiority arising due to ownership ofthat knowledge, perception of not beingadequately rewarded for a knowledge sharingaction, and the lack of time and resources that theindividual has to effect such a transfer. Thus,unless the knowledge source can have a positiveresponse to the question, &dquo;Whats in it for me?&dquo;knowledge sharing behavior is less likely tohappen. Therefore, in order to increase theprospects of knowledge sharing by employees,organizations would benefit by knowing how toolssuch as reward systems can be effective.

Knowledge sharing is a key component ofknowledge management systems (Alavi &Leidner, 2001; Earl, 2001). Based on thetaxonomy of knowledge management systemsproposed by Earl, we identify four majormechanisms for individuals to share theirknowledge in organizations: first, contribution ofknowledge to organizational databases; second,sharing knowledge in formal interactions within oracross teams or work units; third, sharingknowledge in informal interactions amongindividuals; and fourth, sharing knowledge withincommunities of practice, which are voluntaryforums of employees around a topic of interest.


66

Our classification of knowledge sharingmechanisms is consistent with Hansen, Nohria,and Tierneys (1999) argument that companiestend to emphasize either a codification strategy ora personalization strategy for knowledge sharing.Hansen et al. gave examples of consulting firmssuch as Ernst and Young that emphasize capturingknowledge objects in databases and McKinseyemphasizing person to person contacts forknowledge sharing. Thus, in our classificationscheme, whereas knowledge contribution to adatabase would fall under the codificationstrategy, the other three mechanisms are variantsof the personalization strategy.

It may be noted that these knowledge sharingmechanisms are not mutually exclusive. Eventhough organizations may emphasize one over theother, all of these systems are important for theorganization in tapping individual knowledge forcollective use.

Reward systemsRewards could range from monetary

incentives such as bonuses to non-monetaryawards such as dinner gift certificates to awardssuch as praise and public recognition that do nothave a monetary equivalent value. Rewards couldalso be intrinsic, such as pleasure derived fromperforming the task itself. The focus of our paperis mainly on extrinsic rewards though weacknowledge the situations in which intrinsicrewards are of primary importance. For thepurpose of our discussion, and in order to use auniform metric, we consider only the monetaryrewards for their effect on knowledge sharing. Weconsider two sets of complementary factors onwhich rewards could be contingent: first,knowledge sharing behaviors and second,outcomes other than knowledge sharing, such asperformance. Thus, we include in our discussionthe monetary awards that are contingent onknowledge sharing behaviors and incentives thatare contingent on performance at individual,group, and organization levels.

Bartol and Locke (2000) identified severalimportant aspects of organizational rewardsystems that are useful for motivating individualsto perform the targeted behaviors. These factorsinclude, but are not limited to, perceived fairnessof rewards, employees setting challenging goals inorder to achieve the attractive rewards, andpractices that insure that employees possess high

self-efficacy for performing the tasks. In order thatreward systems meet these criteria and areeffective, two basic prerequisites are that it shouldbe possible for the reward giver to observe orrecord the target behavior and to assess its value.

Rewards contingent on knowledge-sharing: can they work?

Before we examine different kinds of rewardsthat are contingent on knowledge sharing, it isimportant to know if such rewards will help at allin encouraging individuals to share theirknowledge. This question becomes relevantbecause the proponents of cognitive evaluationtheory (Deci & Ryan, 1985) have argued thatextrinsic rewards (e.g., monetary awards) willhave a negative impact on intrinsic motivation.Briefly, the argument is that intrinsic motivation--that is, being motivated to perform a task becauseof the inherent enjoyment derived from doing thattask--is based in the feeling of self-determinationand competence realized by the individual.

In the case of extrinsic rewards contingent on _engaging in or completing a target behavior, theindividual would perceive the locus of causality ofbehavior as external and so, the feeling of self-determination would be undermined therebyreducing intrinsic motivation. However, extrinsicrewards can also convey a signal affirmingcompetence of the individual that has a favorableimpact on intrinsic motivation. Thus, because ofthese competing forces, it is not easy to predict theoutcome of extrinsic rewards on intrinsicmotivation. Indeed, several meta-analyses of pastresearch on this subject have been done and themost recent ones by Deci, Koestner, and Ryan(1999) and the rejoinder by Eisenberger, Pierce,and Cameron (1999) highlight the existingcontroversy on this topic. Deci et al. (1999) foundthat rewards contingent on the completion of abehavior had an overall negative effect on freechoice behavior, but no effect on individualsinterest in the task. On the other hand, in a meta-analysis of studies that measured self-determination, Eisenberger et al. (1999) found thatextrinsic rewards had a positive effect on feelingsof self-determination that is beneficial for intrinsicmotivation.

The intrinsic motivation is argued as apropellant of individual creativity (Amabile,1993). The relationship between creativity and


67

knowledge sharing is theorized as follows. In thecase of knowledge sharing, the focus is on sharingnew and relevant ideas whether generated byoneself or acquired through routine activities orborrowed from ones social network. Creativity,on the other hand, focuses mainly on thegeneration of ideas. Thus, the discussion oncreativity is relevant to the extent that if extrinsicrewards hamper creativity, knowledge sharingmight also be reduced to the extent that peoplemay not be able to generate as many creativeideas.

Research by Amabile (1993) suggests thatparticular forms of extrinsic motivation can becombined in a synergistic or additive way withintrinsic motivation to enhance prospects forcreativity. Such synergistic extrinsic motivatorsoffer feedback about the individuals competenceand the value of the individuals outcomes, but doso without undermining feelings of self-determination or unduly constraining the way inwhich the work is to be done. She argues extrinsicmotivation fosters relatively straightforwardapplications of technical knowledge. While thegeneration of novel ideas will sometimes beimportant in tapping the expertise of individuals inorganizations, arguably the sharing of knowntechnical information is of considerable value inmany instances (Darr, Argote, & Epple, 1995). Ineither case, it appears possible to apply rewards inways that support rather than undermine intrinsicmotivation in behalf of knowledge sharing.

Knowledge contributions to databasesThe first mechanism for knowledge sharing is

one in which employees contribute their ideas,information, and expertise to a database. Xeroxdeveloped a system called Eureka in whichphotocopier maintenance engineers couldcontribute any ideas that helped in improvingmachine maintenance practices. After verificationof these ideas, they became a part of the databasethrough which engineers all over the world coulduse this knowledge (Brown & Duguid, 2000).Xerox has observed gains by promotingknowledge sharing within the company throughthis mechanism. In one anecdotal illustration, thecompany described how an engineer in Brazil wasabout to replace a high-end color machine (at acost of about $40,000) for a dissatisfied customer.Experimenting with a prototype of Eureka, theknowledge sharing system of Xerox, he found a

tip from a technician in Montreal that led him tosimply replace a defective 50-cent fuse instead andsolve the problem. In all, Eureka is estimated tohave saved the corporation $100 million (Brown& Duguid, 2000).

There is some anecdotal evidence to suggestthat companies have been rewarding people forknowledge sharing through this mechanism. Forexample, Cap Gemini Ernst & Young makes meritpay decisions partly on the basis of the knowledgesharing activities of its employees. On a scalefrom 2 to 5, employees cannot score more than 3points if they have not participated in knowledgesharing activities (Stevens, 2000). Similarpractices exist at Lotus Development division ofIBM and Buckman Laboratories (Stevens, 2000).

While there is no research to the best of ourknowledge on whether such rewards are effective,we argue that the system of knowledgecontribution to a database is particularly suited torewards contingent on knowledge sharingbehaviors. Thibaut and Kelley (1959) and Blau(1964) were some of the early researchers todifferentiate social interactions based on socialexchange versus economic exchange. Both formsof exchange are based on the expectation ofreturns commensurate with individualcontributions. The main difference is in terms ofhow clearly the exchange is defined and in whatway one obtains return for ones contribution. Inthe case of economic exchange, it is easier toquantify and exchange the contributions for thereceipts and so, the system can work on a quid proquo basis. On the other hand, in the case of socialexchange, there is no standard currency ofexchange. We argue that knowledge contributionto a database is toward the economic end of thecontinuum of exchange relationship between theemployer and employee. Williamson (1981)recognizes that one of the important factors thatfacilitates market exchange is the ability tomeasure the value of the services provided by anindependent contractor. If there is a measurementor &dquo;metering&dquo; problem, the activity is moreefficiently carried out internally under thehierarchical governance or, as discussed above, ismore suited to social exchange arrangements.Using the same logic, we argue that in the case ofknowledge contribution to databases wheremeasurement is comparatively much easier (ascompared to informal knowledge sharing, forexample), it would be possible for organizations to


68

take into account the discrete transactions (i.e.,specific events of knowledge sharing) to rewardemployees suitably.

In case of knowledge contributions to adatabase, knowledge shared by an individual isrecorded in the first place. Secondly, as in the caseof Xerox, there is a system of validation ofknowledge before it becomes part of the database.That is, a small group of experts evaluates theideas for their relevance. Thus, it is possible fororganizations to measure the worth of theknowledge that is shared and make decisions onthe rewards accordingly. For example, CapGemini Ernst & Young measures the value ofknowledge contributed in the database on the basisof how many people use that knowledge.

Indeed, the modem knowledge databases aresimilar to the conventional employee suggestionprograms in the sense that the basic idea in boththe systems is that employees contribute what theyknow that can help the organization. In both thesystems, there could be guidelines as to what theemployees can contribute and what becomesaccessible to other employees to benefit from.Thus, it is quite likely that if organizations, basedon evaluation of the shared knowledge, giverewards for contributions of employees todatabases then it will have a positive effect on theextent of knowledge sharing by individuals.

Proposition 1: Rewards contingent onknowledge sharing will have a positive effect onthe extent of knowledge that individuals contributeto databases. This is because of the relative easewith which the organization can record andmeasure the value of the knowledge that has beenshared.

It is, of course, important that the value of thereward is related to the worth of the knowledgethat is shared in order to ensure equity (Adams,1965). As to the question of how high the valueshould be, an interesting situation arises when anindividual possesses knowledge of strategicsignificance and the organization aims to make theindividual share it. For the purpose of ourdiscussion, we assume that the objective oforganizations as well as individuals is to maximizemonetary returns, there are no constraints foremployees to change organizations, andindividuals are well informed about the worth oftheir knowledge.

Spender (1996) gives the example of an R&Dscientist who discovers something valuable for the

organization. The individual can walk out of theorganization and could possibly help thecompetitors. The reward needed to induce thescientist to share this knowledge would equal thevalue of that knowledge in the best alternative useoutside the organization. The organization wouldattain competitive advantage due to suchknowledge only if such knowledge is firm-specific, that is, it is of more value in the currentorganizational context than in any otherorganization. Otherwise, the price paid (in theform of rewards) to capture such knowledge mayneutralize any competitive advantage theorganization could derive.

For example, firm specific knowledge is whata person may have acquired by interacting withfinn-specific assets (e.g., a specialized group ofmachines that are not present in otherorganizations) and so, has limited use with theassets used by other companies. Another exampleof firm-specificity of knowledge is that R & Dknow-how might require effective production andmarketing in order to achieve the desired returnsand, even though other companies would benefitfrom the R & D know-how, the current location ofthe knowledge will give the highest return due toits superior production and marketing capabilities.Thus, the organization would be in a position topay the individual what the knowledge may beworth outside and still make a gain on thetransaction.

Obviously, numerous other factorsinfluence pay decisions in such instances. Forexample, even if we assume that the value ofknowledge could be known to both parties, it isimportant to note that not all individuals areworking toward maximizing monetary utility allthe time (Argyris, 1973; Maslow, 1970). However,our purpose was to illustrate that rewards can beeffective in such knowledge sharing situations andto identify an extreme situation in which the costof rewards could be prohibitively high.

KNOWLEDGE SHARING IN FORMALINTERACTIONS

A second mechanism for knowledge sharingis formal interactions. These could take placewithin teams or work units or across peopleworking in different teams, departments, divisions,etc. For example, teams and departments may holdperiodic meetings in which the leader seeks the


69

input of employees. In such cases, there are someoptions regarding whether knowledge sharing isrewarded at the level of the individual, the team,or across teams/work units.

Individual level rewardsIn the case of formal meetings of teams and

work units, it is possible to reward individuals fortheir knowledge sharing behavior because theleader has the opportunity to evaluate thecontributions made by individuals over a period oftime. Thus, knowledge sharing behaviors could beone of the criteria in performance evaluation, anddecisions on merit pay and promotions could berelated to the extent of knowledge sharing byindividuals in formal interactions. Bonuses mightbe possible, but they tend to be more appropriatelytied to specific outcomes or linked to specialaccomplishments.

Unless a manager is actually part of the team,it will typically be more difficult to evaluate on-going knowledge sharing at the team level forpurposes of allocating rewards. One potentialsolution is to institute peer ratings, perhaps as partof a 360 degree performance appraisal. Theseadditional information mechanisms may make itpossible to reward knowledge sharing behaviorwithin teams and across teams/work units.

Proposition 2: Merit pay plans that includeassessment and explicit recognition of knowledgesharing will have a positive effect on extent towhich individuals share knowledge within andacross teams and work units.

While rewarding individuals for knowledge isone potential approach to encouraging knowledgesharing, another approach is to foster knowledgesharing at the team level.

Rewards at the team levelAt the team level, it may be possible to

encourage knowledge sharing through indirectrewards-that is, rewards that are contingent onfactors other than knowledge sharing, but whichare likely to require knowledge sharing forsuccessful performance. For instance, whenoutcomes such as performance are rewarded at theindividual level, an individual who sharesknowledge with others may be likely to think thatthe knowledge he/she shares will improve theperformance of others rather than his/her ownperformance. Since knowledge sharing behaviorinvolves effort away from the task, an individual

may, in fact, perceive knowledge sharing behaviorto be detrimental to self-performance. On the otherhand, team metrics have the advantage of fosteringcooperation and coordination and motivatinggroup members to focus on group goals andperformance (Dulebohn & Martocchio, 1998).

It may be noted that team incentives may alsosuffer from the problem of free riding (Gerhart,Minkoff, & Olsen, 1995). However, as Lawler( 1971 ) argued, there could be a positive effect onindividual perceptions of instrumentality if thebelief is that individual behavior will facilitatecooperation and coordination, which, in turn,would lead to improvement in collectiveperformance. On balance, we would expectindividuals to believe that their knowledge sharingbehavior helps others in improving performanceand it might also develop a sense of cooperationand reciprocity in which everyone sharesknowledge thereby improving team performance.Past research has indeed argued and empiricallyfound support for the positive relationship betweenknowledge sharing and team performance(Durham, Knight, & Locke, 1997; Faraj &Sproull, 2000; Lewis, 1999). Thus, team-basedrewards are likely to encourage knowledge sharingby individuals within teams assuming individualsperceive the linkage between their knowledgesharing behavior and team performance, andrewards.

Proposition 3: Rewards based on teamperformance are likely to enhance knowledgesharing within teams.

Rewards across teamslwork-unitsIn the case of companies with diverse

businesses or operations in several countries, thereare advantages to be gained by sharing knowledgebetween businesses or subsidiaries (Gupta &Govindarajan, 2000a). The role of rewards hasbeen recognized in such companies and systemsthat reward heads of businessdivisions/subsidiaries on the basis of performanceof the firm as a whole (e.g., profits) or that of alarge number of clusters, as opposed to just theindividual units performance, have beenempirically found to be more effective inencouraging knowledge sharing (Gupta &Govindarajan, 1986; Pitts, 1974). Similarly, inNucor Steel, plant general managers tend to sharetheir best practices with one another because theirbonuses depend not only on the performance of


70

their individual plants, but also on the basis ofperformance of the entire company (Gupta &Govindarajan, 2000b).

Durham and Bartol (2000) argue that a likelylimitation of profit sharing plans is that they do notestablish a clear link between individual behaviorand its impact on profits. However, if a link doesexist between individual knowledge and profits,such reward systems can be effective. Forexample, as a person goes up in hierarchy, theperceived link between ones behaviors andcompany profits may strengthen. Profit sharingcould facilitate individuals sharing theirknowledge for the benefit of the organization as awhole and for teams (e.g., consulting projectteams) sharing knowledge with one another.

An area that relates to profit sharing isgainsharing, a compensation plan in which anorganization shares with employees a portion ofthe added earnings obtained through theircollective increases in productivity (Henderson,1997). Gainsharing plans have been in existencefor more than hundred years (Welboume &Gomez-Mejia, 1995) and typically include thewhole organization or a significant portion.Welboume and Gomez-Mejia (1995) presentedeleven different theoretical perspectives on whygainsharing might lead to the contribution of ideasby employees in a work unit. Authors also citedseveral studies that found a positive effect ofintroduction of gainsharing on productivity.Gainsharing programs, such as Scanlon andRucker plans, have specific provisions foremployee involvement in terms of contribution ofsuggestions and a committee giving awards toemployees with valuable ideas (Welboume &Gomez-Mejia, 1995), even though the main focusof the plans is on group level rewards.

Another type of pay for performance planoperating at the organizational level that is likelyto have a positive effect on knowledge sharing isemployee stock ownership. Lawler, Mohrman, andLedford (1995) found that 71 percent of Fortune1000 companies had stock ownership programs ofsome kind or the other. Employee stock optionplans are one of the most popular forms of stockownership, which gives employees the choice topurchase a specific amount of stock at a particularprice over a period of time. The underlyingpremise is that employees will be more involved inthe long-term success of the organization. In along-term relationship, a temporary mismatch

between ones contributions and rewards isaccommodated as the person hopes to balance thetwo over a period of time. On the other hand, ashort-term relationship is likely to set up a quidpro quo attitude in which the individual, ingeneral, would want immediate monetaryincentives or knowledge reciprocated by someoneelse.

Pierce, Rubenfeld, and Morgan ( 1991 ) arguedthat employee stock option plans are likely todevelop a sense of ownership in employees. In anempirical study of construction companies, VanDyne and Pierce (1993) found that psychologicalownership arising due to stock ownership led toincreased organizational commitment. This senseof ownership and commitment is likely to beparticularly effective in motivating individuals toshare complex knowledge when a quid pro quoarrangement may not be possible due to greatertime and effort involved in sharing.

There could be several situations inorganizations where the nature of knowledge thatis being shared is complex, meaning it is difficultto codify or communicate or it takes a long timeand great effort for the source to transmit and therecipient to absorb that knowledge. Typically,such knowledge tends to be tacit in nature. Anexample of such situations could be a senior R&Dscientist mentoring a new scientist on firm-specifictechnology or a new technology in its nascentstage. Another example could be one top managergrooming a successor. It might require longperiods of observations and discussions by thesuccessor. The person who shares the knowledgenot only has to set aside the time and spend effortthat could possibly be a distraction from thecurrent job on hand, but also it is possible that thissource of knowledge may feel a sense of losing hisor her worth in the organization because theunique knowledge that this person possessed isnow being shared with other persons. Thecommitment to the organization and a sense ofownership, fostered in part by employee stockoption plans, is likely to be useful in encouragingsuch knowledge sharing behaviors.

Proposition 4: Profit sharing plans will have apositive effect on knowledge sharing across teamsand work units.

Proposition 5: Gainsharing plans will have apositive effect on knowledge sharing across teamsand work units.


71

Proposition 6: Stock ownership plans areparticularly suited to motivate employees to sharetheir complex knowledge.

As in the earlier case of knowledge sharingwithin teams, in the case of formal interactionsacross teams and work units, it might be possibleto monitor the knowledge sharing behavior andinclude this criterion in individual evaluations.Multinationals and diversified companies mayhold conferences where managers of variousdivisions may present their best practices, in thepresence of top managers, for everyone to share.While opening a new subsidiary in a foreigncountry, managers of other countries in that regionmay be directed by the global company headoffice to share their expertise and experience inhelping the new subsidiary take off. The corporatehead office may have sources of monitoring suchbehaviors on the basis of feedback received fromthe managers of the new subsidiary, for example.

KNOWLEDGE SHARING IN INFORMALINTERACTIONS

Earl (2001) gives examples of companiessuch as McKinsey and American Express thathave knowledge directories in which employeesare identified for their areas of expertise.Organizations hope that these experts share theirknowledge when other employees approach them.Informal sharing also includes informal water-cooler chats. The important characteristic ofinformal interactions is that communication isusually not recorded and the contributions aremore difficult to evaluate. Thus, these behaviorsfall more toward the social exchange end of thecontinuum of exchange relationships between theemployer and the employee.

Social exchange refers to reciprocal acts inwhich individuals offer help or information to oneanother &dquo;without negotiation of terms and withoutknowledge of whether or when the other willreciprocate&dquo; (Molm, Takahashi, & Peterson, 2000,p.1396). Thus, such exchanges are marked withrisk as to what and when the returns of onescontributions will be. Accordingly, Molm et al.(2000) argued that trust, defmed as an expectationthat an exchange partner will behave benignly,plays a more important role in reciprocaltransactions than in economic exchange whereterms and conditions are known in advance andmay even be guaranteed by the organization. On

the other hand, in the case of social exchangewhere people make contributions beyond what isincluded in their job descriptions, it is importantthat people trust that the organization willreciprocate in some form or the other in the longrun (Homans, 1961).

We argue that rewards contingent onknowledge sharing will be less effective in thecase of social exchange because discretetransactions may not be identifiable within thecontext of formal reward systems. Instead, theremay be a sequence of mutually beneficialbehaviors among two or more actors (Molm et al.,2000). As Masterson et al. (2000, p.739) argued,&dquo;standards for measuring contributions are oftenunclear&dquo; in transactions based on social exchangeand so, rewards contingent on such behaviors maybe less effective.

Several scholars (e.g., Hedlund & Nonaka,1993; Nonaka, 1994; Zand, 1981) also recognizedthe importance of inter-personal trust in teams andorganizations for creating an atmosphere in whichpeople shared knowledge. Jassawala and Sashittal(2000) recommended that effective leaders of newproduct teams should be open and honest incommunication thereby establishing interpersonaltrust. Several scholars have recognized that trustcan enable cooperative behavior (such asknowledge sharing) among individuals (Axelrod,1984; Mayer, Davis, & Schoorman, 1995;McAllister, 1995).. In such situations, rewardscould still play an indirect role in enhancingknowledge sharing in informal interactionsthrough fostering the development of trustbetween the employer and the employee.

Lind and Tyler (1988) argued that proceduralfairness is an important source of trust in theemployee-supervisor relationship. Fair proceduresare likely to inculcate individual trust in systems(Brockner & Siegel, 1997). Several researchers(e.g., Alexander & Ruderman, 1987; Konovsky &Pugh, 1994; Tyler & Degoey, 1996) have foundprocedural justice and trust to be highly related. Ifa supervisor is perceived as following fairprocedures in giving rewards to an individual forcontributions made to the organization, theindividual is likely to believe that in the futurealso, the supervisor will protect his/her interests.According to the group value effects model ofprocedural justice (Greenberg, 1990), fairprocedures convey a signal to employees that theorganization values them and this may prompt


72

them to respond with organizational citizenshipbehaviors (OCB) that could include sharingknowledge with co-workers so as to help them.Consistent with these arguments, perception ofprocedural justice has been recognized as animportant antecedent of OCB (Deluga, 1994;Konovsky & Organ, 1996; Konovsky & Pugh,1994; Wayne & Green 1993).

Leventhal (1976) argued that managers whoallocate rewards could build a reputation as beingtrustworthy if they have been honoring the pastcommitments. Thus, ensuring fair outcomes toteam members is an important way of establishingtrust. Robinson and Morrison (1995) argued thatemployees have a tendency to avoid helpingbehaviors when their employer providesinadequate outcomes, in accordance with Adams(1965) equity theory. The authors argued thatemployees beliefs about the extent to which theirorganization has fulfilled its obligations to themwould affect their prosocial behaviors, such asknowledge sharing in informal interactions withinthe organization.

Proposition 7: Procedural and distributivefairness of rewards will influence the level of trustin the organization, which, in turn, will affect theextent to which individuals engage in prosocialbehaviors such as knowledge sharing in informalinteractions.

COMMUNITIES OF PRACTICE

The last mechanism of knowledge sharingthat we consider is the establishment ofcommunities of practice (COP) whereinemployees within an organization communicate ontopics of their interest in a non-routine, personal,and unstructured system (Earl, 2001). Earl givesthe example of BP Amoco for this type of asystem. Being an informal structure, COP mayalso extend beyond organizational boundaries. In atypical electronic COP, participants ask questions,give responses to the questions posted by others,and initiate discussions on topics that mightinterest the virtual community. Brown and Duguid(1991) argued that the presence of suchcommunities in organizations is vital toinnovation. Similarly, Lave and Wenger (1991)asserted that such communities simultaneouslyproduce practically useful outcomes for customersas well as for participants. Accordingly, it may beadvantageous for organizations to provide

technological support for COP so that knowledgethat is not captured through databases couldemerge in interactions among people tied bymutual interests (Faraj & Wasko, 2002).

Constant, Sproull, and Kiesler (1996) raisedthe question &dquo;why should someone respond to arequest for help from a stranger when thelikelihood of direct personal benefit is low?&dquo;(p.121). In their study of COP at TandemComputers Inc., Constant et al. found thatemployees who participated in COP weremotivated by organizational citizenship. Faraj andWasko (2002) found two reasons responsible forknowledge contributions by individuals in COP.First, participants want to create relationships withothers who have similar interests and second,participants are driven by the need for actualizingtheir potential, learning, and advancing thecommunity.

It is somewhat difficult for the organizationsto reward knowledge sharing behavior in COPsettings because these are informal arrangementsamong participants, although they may be nurturedand supported by the organization in various ways.To some extent, it may be possible to acquireinformation about a particular employeescontributions through peer information, anecdotalinformation regarding instances in which aparticipants advice was instrumental, and reportsof a COPs activities. However, given the reasonswhy employees participate and consistent with jobcharacteristics theory (Hackman & Oldham,1980), it is likely that the most effective means ofencouraging COP knowledge sharing will focusheavily on creating conditions that foster intrinsicmotivation, such as the nature of the work(Hackman & Oldham), and promoting feelings ofcompetence through such means as helpingparticipants build expertise and providingrecognition. For example, although the WorldBank does recognize COP involvement through itsperformance evaluation system, the Bank dependsmainly on intrinsic motivation associated withCOP membership, such as the opportunity to workon interesting ideas and build relationships withcolleagues to encourage knowledge sharing(Wenger & Snyder, 2000).

Proposition 8: Intrinsic rewards and factorsthat build expertise and feelings of competence aremost appropriate for influencing knowledgesharing behavior within organizationalcommunities of practice.


73

DISCUSSION .

Our main motivation in developing thearguments here is the growing realization thatknowledge sharing within organizations is acritical process affecting knowledge creation,organizational learning, and performanceachievement. While knowledge sharing behaviorhas been attributed to causal factors ranging fromindividual dispositions to wider phenomena suchas organizational culture (see Argote, 1999, for areview), the lack of emphasis on considering thepotential impact of rewards has been surprising,particularly considering the fact that rewards arepresent in virtually all organizations. Our analysesbegins to fill this void in the literature. Building onthe work of Earl (2001), we propose four majormechanisms of knowledge sharing. Thesemechanisms reflect the codification andpersonalization strategies proposed by Hansen etal. (1999). We also have examined the effects oftwo broad categories of rewards, the ones that arecontingent on knowledge sharing behaviors andothers that are contingent on factors such asperformance.

The first mechanism, knowledgecontributions to databases enables the knowledgesharing behaviors to be recorded, and severalorganizations that seek to codify knowledge alsoattempt to validate that knowledge (Liebowitz,1999). Considering the factors that are useful fordesigning and administering effective rewardsystems (Bartol & Locke, 2000), we argue thattwo helpful prerequisites, recording and measuringthe knowledge shared by individuals, are met inthe case of knowledge contributions to databases.Accordingly, rewards contingent on knowledgesharing are likely to be appropriate.

According to our conceptualization, in thecase of knowledge sharing in formal interactions,the reward allocator (e.g., team leader) is likely tobe able to observe or track the knowledge sharingbehaviors of individuals. Thus, it might bepossible for the organization to allocate a certainweight to the knowledge sharing behaviors ofindividuals as part of their performance appraisalsand for supervisors to evaluate the individuals onthis dimension. However, knowledge sharing willalso be influenced by incentives based on groupperformance. Team-based rewards can fostercooperation among team members, and also, theindividuals involved are likely to consider their

knowledge sharing behaviors as instrumental inachieving the team-based rewards. Similarly, forknowledge sharing across teams and work units,company-wide incentives such as gainsharing,profit sharing and employee stock options willhelp in encouraging knowledge sharing. Employeestock options are particularly likely to encourageindividuals to share knowledge that is high incomplexity. This is because stock ownership islikely to engender organizational commitment andownership that will be important in influencing theindividual to spend the time and effort sharingcomplex knowledge.

The third mechanism we consider isknowledge sharing in informal interactions. Sinceknowledge sharing behaviors in this context arenot easily measured, it is difficult to make therewards contingent on knowledge sharingbehaviors. However, rewards can still becontingent on knowledge sharing behaviorsobserved over a period of time by ones colleaguesbecause organizations can seek feedback frommultiple sources on this dimension as in 360degree appraisal systems. We argue that, for themost part, employee contributions of knowledge ininformal interactions will be based on the premiseof social exchange, where quid pro quoarrangements may not be possible-at least in theshort run. Consistent arguments and findings in thesocial exchange literature have been that trust is amajor facilitator of social exchange transactions.Rewards also play a role in such a knowledgesharing mechanism in the sense that the perceivedfairness of reward systems will assist in thedevelopment of trust between an individual andthe organization.

Finally, we consider the emerging role ofcommunities of practice in organizations. Sincethis mechanism is frequently nurtured, but notcontrolled by the organization, formal rewardsystems have a lesser role to play. Previousresearch by Constant et al. (1996) and Faraj andWasko (2002) indicates that individualsparticipating in COP activities are motivated byfactors such as organizational citizenship, self-actualization, learning, and advancement of thecommunity. Thus, communities of practicerepresent the scenario where monetary rewardsmay be less useful and what might matter is theintrinsic motivation of individuals. Helpingparticipants build expertise and providingrecognition may constitute added encouragement.


74

We hope our paper is interpreted as a call forfuture empirical research on the role of rewards inknowledge sharing because the current evidenceon the effectiveness of rewards is

-mainlyanecdotal (the gainsharing research is an importantexception) and our knowledge of this field wouldbe substantially enriched by additional empiricalresults. Field studies may be complemented bylaboratory experiments that substantiate causalityand the role of intervening processes such ascooperation, commitment, ownership, and trustthat we discussed. Experimental studies onknowledge sharing in team settings (e.g., Stasser& Stewart, 1985) have largely ignored the role ofteam-based rewards.

For practicing managers, our paper suggeststhat rewards are important for most mechanisms ofknowledge sharing. We provide guidelinesregarding which rewards are likely to be mosteffective with each of the four mechanisms. Ofcourse, simply introducing the rewards will notachieve their intended results unless basicguidelines for the effective use of rewards, such asclear goals, rewards of value, and sufficientemployee self-efficacy (Bartol & Locke, 2000)are also followed.

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